Author Archive
Monday Regulatory Roundup: Here’s What’s Happening in Washington (2/13)
Electronic Fund Transfers (Regulation E)
AGENCY: Bureau of Consumer Financial Protection.
SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is
proposing to amend Regulation E, which implements the Electronic Fund
Transfer Act, and the official interpretation to the regulation, which
interprets the requirements of Regulation E. The proposal is related to
a final rule, published elsewhere in today’s Federal Register, that
implements section 1073 of the Dodd-Frank Wall Street Reform and
Consumer Protection Act regarding remittance transfers. The proposal
requests comment on whether a safe harbor should be adopted with
respect to the phrase “normal course of business” in the definition
of “remittance transfer provider.” This definition determines whether
a person is covered by the rule. The proposal also requests comment on
several aspects of the final rule regarding remittance transfers that
are scheduled in advance, including preauthorized remittance transfers.
In developing the final rule, the Bureau believes that these issues
would benefit from further public comment.
DATES: Comments must be received on or before April 9, 2012.
Monday Regulatory Roundup: Here’s What’s Going on in Washington (2/6)
Financial Derivatives Transactions To Offset Interest Rate Risk;
Investment and Deposit Activities
AGENCY: National Credit Union Administration.
SUMMARY: Through this Advance Notice of Proposed Rulemaking (“ANPR”),
the NCUA Board (Board) requests additional public comments to identify
the conditions for federal credit unions (FCUs) to engage in certain
derivatives transactions for the purpose of offsetting interest rate
risk (IRR).\1\ This ANPR follows an earlier Advance Notice of Proposed
Rulemaking (ANPR I) on derivatives transactions issued for comment (76
FR 37030, June 24, 2011). This ANPR asks additional questions regarding
the conditions under which NCUA may grant authority for an FCU to
engage in derivatives transactions independently.
DATES: Comments must be received on or before April 3, 2012.Compensation, Retirement Programs, and Related Benefits
Loan Workouts and Nonaccrual Policy, and Regulatory Reporting of
Troubled Debt Restructured Loans
AGENCY: National Credit Union Administration (NCUA).
SUMMARY: NCUA proposes to amend its regulations to require federally
insured credit unions (FICUs) to maintain written policies that address
the management of loan workout arrangements and nonaccrual policies for
loans, consistent with industry practice or Financial Institutions
Examination Council (FFIEC) requirements. The proposed rulemaking
includes guidelines set forth as an interpretive ruling and policy
statement (IRPS) and incorporated as an appendix to the rule that will
assist FICUs in complying with the rule, including the regulatory
reporting of troubled debt restructured loans (TDR loans or TDRs) in
FICU Call Reports. The NCUA Board (Board) believes this proposed
rulemaking and IRPS is timely considering the growth of these types of
loans during the recent economic stresses experienced in the financial
industry.
DATES: Send your comments to reach us on or before March 2, 2012. We
may not consider comments received after the above date in making our
decision on the proposed rule.
Compensation, Retirement Programs, and Related Benefits
AGENCY: Farm Credit Administration.
SUMMARY: The Farm Credit Administration (FCA, us, we, or our) proposes
to amend our regulations related to Farm Credit System (System) bank
and association disclosures to shareholders and investors. The proposed
rule would require reporting of supplemental retirement plans, a
discussion of the link between senior officer compensation and
performance, and timely and transparent reporting to shareholders of
significant events that occur between annual reporting periods. We
believe the proposed changes will provide full, transparent and
consistent disclosures to shareholders. The proposed rule would
identify the minimum responsibilities a compensation committee must
perform to ensure it continues to exercise good stewardship, and
require that System banks and associations provide for a nonbinding,
advisory vote on senior officer compensation in order to engage
shareholders in the management and control of their institution. Also,
the proposed rule would bifurcate existing annual reporting
requirements at Sec. 620.5 and make other conforming technical
changes.
DATES: Submit comments on or before March 23, 2012.
Insurance Coverage Fundamentals for Bankers: Cyber & Employment Exposures
Employment discrimination lawsuits have long been considered significant exposure risks for private employers, while cyber exposures are new in comparison. Technology advances and the growing number of communication channels increase the risk of both of these exposures. The ever-changing context demands that employers stay current to mitigate and manage these risks. Employment Practices Liability Insurance (EPLI) and Cyber Insurance are primary tools for managing these risks.
Please join us as underwriters of the Chubb Group of Insurance Companies, insurance brokers of Schifman, Remley & Associates, and Stinson attorneys discuss Employment and Cyber exposures facing banks, along with fundamentals of EPLI and Cyber Insurance available to banks. The panel will discuss contemporary trends and threats resulting from changing technologies and means of communications, along with key insurance issues.
In addition, featured panelist Mark Larrabee, President & CEO of Arvest Bank, will share his real-world perspective on some long-lived employment discrimination litigation and thoughts on new technology.
FEATURED PANELISTS
- Mark Larrabee, Arvest Bank
- George N. Allport, Chubb Group of Insurance Companies
- Robert A. Lippert, Chubb Group of Insurance Companies
- Randy Larsen, Schifman, Remley & Associates
- Bob Monroe, Stinson Morrison Hecker LLP
- Scott Hecht, Stinson Morrison Hecker LLP
WHEN
Wednesday, March 7
2 p.m. Registration
2:30 p.m. Program
4:30 p.m. Reception
Add event to calendar
WHERE
Stinson Morrison Hecker
1201 Walnut, Ste. 2900
Kansas City, MO Directions
RSVP
Please register online
by Friday, March 2
Register For Stinson’s Next Banking Seminar – November 10, 2011
| For the last year, bankers have been agonizing over the many challenges posed by the current economic environment and certain portions of the Dodd-Frank Act that affect community banks. This seminar will highlight aspects of Dodd-Frank and will also identify and analyze hot topics in more traditional areas such as payments and operations, lending and estate planning. It’s a nuts and bolts program aimed at all bankers.
AGENDA 1:15 p.m. Hot Topics in Payments, Deposits and Operations
2:15 p.m. Stay Out of Trouble – Dealing With Your Borrower This session will focus on the legal relationship between the bank and its borrowers and instances in which the nature of that relationship has resulted in liability to the bank. 3:00 p.m. Opportunities and Risks: Payroll Cards and Managing 3rd Party Risks Banks continue to search for new sources of revenue. Could payroll cards or prepaid cards be one of the answers? Of course, with every new product involving 3rd party service providers, the bank experiences risk. This risk must be understood and managed. 3:30 p.m. Break 3:45 p.m. When are Assets Creditor-Proof? The manner in which assets are owned can achieve important estate planning and tax-saving goals while impeding creditors. Legitimate use of tenancy by the entirety designations, “spendthrift” and discretionary trusts and closely-held limited liability entities, along with the making of gifts, provides significant asset protection benefits. Questionable structures and transfers, however, can be challenged. 4:15 p.m. Bank Consolidations and Dodd-Frank Branching Rules This session will (i) focus on current and future bank consolidations and (ii) cover structures, capital, pricing and regulatory hurdles. In addition, the Dodd-Frank interstate branching rules will be discussed. 4:45 p.m. Q&A Session 5:00 p.m. Cocktail Hour |
WHEN
November 10, 2011
12:30 p.m. Registration
1:00 p.m. Program
5:00 p.m. Reception
WHERE
Stinson Morrison Hecker
1201 Walnut, Suite 2900
Kansas City, MO 64106
directions
If you are unable to attend the seminar, but would like to receive a copy of the handouts, please click here.
RSVP
You can register online, by email or call 816.691.3479.
ASK A QUESTION
Submit a question or comment in advance. This will help us frame the program and discussion.
FDICs Deposit Insurance Fund is Back in the Black
The FDIC recently announced that after seven consecutive quarters of negative balances, the Deposit Insurance Fund is back in the black with a positive balance of $3.9 billion as of June 30, 2011. Further, the FDIC projects that total cost of FDIC-insured bank failures from 2011 through 2015 will be $19 billion, which is appoximately $4 billion less than the total cost of failures during 2010 alone.
FDIC anticipates that the DIF will be approximately 1.15% of estimated insured deposits by 2018. The Dodd-Frank Wall Street Reform and Consumer Protection Act requires the DIF reserve ratio to reach 1.35% by September 30, 2020.
OCC Guidance: Third Party Service Providers in Prepaid Access Programs
On June 28, 2011, the OCC issued a bulletin titled “Description: Risk Management Guidance and Sound Practices” with respect to use of third party service providers for prepaid access programs (the Bulletin).
The Bulletin provides guidance on the risk management expectations of the OCC with respect to all prepaid programs, but especially for banks using third party service providers for their prepaid access programs. While the Bulletin is not binding per se, there is near certainty that the OCC will be examining banks based on the guidance provided in the Bulletin.
The Bulletin sets forth several areas of guidance, including:
- Objectives and risk parameters (including risk limits, program objectives and reporting, performance criteria, and board review of the program)
- Policies, procedures and due diligence (including acceptable and well understood policies and procedures, an exit strategy, detailed evaluation of the selection, and oversight of third party service providers). This section of the Bulletin also contains a complete list of required contract terms.
- Audit and compliance functions (including adequate personnel, testing of accounts with respect to fee disclosures, testing of BSA/AML and OFAC compliance)
- Parameters for reporting to the Board of Directors
While most of the general topics within the Bulletin were generally known to be areas where the OCC has previously indicated are areas of concern, the Bulletin drills down further into those areas with specific procedures and requirements that were not previously known or that were not previously a common practice within the industry. As a result, all banks regulated by the OCC which issue or sell payroll cards, gift cards or general spend prepaid cards should carefully review the Bulletin and begin implementation of the procedures and requirements contained within the Bulletin.
Even for banks that do not issue or sell prepaid cards, or are not national banks, the guidance offers insight into the expectations of the bank regulators on managing risk.
When Does a Manufactured Home Become Real Property in Missouri?
The Missouri legislature has removed some of the uncertainty of determining when a manufactured home (also sometimes known as a mobile home) ceases to be personal property and becomes real property. Effective March 1, 2011, the legislature established statutory procedures for converting manufactured homes into real property through a process of affixation, and for converting such real property back to personal property.
A “manufactured home” is defined in Section 700.010(6) RSMo as a “structure, transportable in one or more sections, which, in the traveling mode, is eight body feet or more in width or forty body feet or more in length, or, when erected on site, is three hundred twenty or more square feet, and which is built on a permanent chassis and designed to be used as a dwelling with or without a permanent foundation when connected to the required utilities, and includes the plumbing, heating, air-conditioning, and electrical systems contained therein. The term includes any structure that meets all of the [foregoing] requirements… except the size requirements and with respect to which the manufacturer voluntarily files a certification required by the United States Secretary of Housing and Urban Development and complies with the standards established under Title 42 of the United States Code.”
Previously, the only statutory criteria governing conversion of manufactured homes to real property were that the owner of a manufactured home attach it to a permanent foundation on real estate owned by the manufactured home owner and that the transporting apparatus be removed or modified, rendering the manufactured home impractical to reconvert to personal property. Consequently, disputes arose whether the manufactured home was actually converted to real property when the criteria were solely factual determinations. Under the new legislation found at Section 442.015 RSMo, in addition to the physical act of attachment, the owner of the real estate must file an affidavit of affixation with the office of the recorder of deeds in the county where the manufactured home is permanently affixed.
Once an affidavit of affixation is recorded, the statute requires that a certified copy of the affidavit of affixation be filed with the Missouri Department of Revenue together with an application for surrender of the manufacturer’s certificate of origin.
After the affidavit of affixation has been recorded and the certified copy is filed with the Missouri Department of Revenue, the manufactured home is deemed to be real estate for both taxation and conveyance purposes. Thereafter, title can be transferred by deed or other form of conveyance that is effective to transfer an interest in real estate, and a mortgage, deed of trust, lien or security interest also then can attach.
If and when a manufactured home for which an affidavit of affixation has been recorded is detached or severed from the real estate to which it is affixed, the owner may record an affidavit of severance in the county real estate records where the affidavit of affixation is recorded. The statute directs the recorder of deeds to issue a certified copy of the affidavit of severance, which certified copy must be filed with the Director of Revenue. Section 700.111 RSMo also establishes a process for obtaining a new certificate of title after a manufactured home has been detached or severed from the real estate.
Forms of the both the affidavit of affixation (Form 5312) and the affidavit of severance (Form 5313) can be found on the website of the Missouri Department of Revenue at http://dor.mo.gov.
For a more in-depth version of this alert, see our website.
Special thanks to Marcia Charney of our Real Estate Division for preparing this article.
Stinson Lawyers Featured at ThinkBig Kansas City Conference
Scott Smalley, Steve Cosentino and Matt Salzman will be panelists at Tuesday’s ThinkBig Kansas City conference. Join Scott, Steve and Matt at the 8:30 breakout session titled: First to Market, First to Fund. ThinkBig Kansas City is a conference for entrepreneurs, investors and startups. The conference takes place at Kansas City Convention Center on Tuesday, May 24th at 8:00 AM.
Learn more about the conference here.
OCC Clarifies Its Approach to Preemption Post Dodd-Frank Act
In a letter to Senator Carper earlier this month, the Office of the Comptroller of the Currency (“OCC”) has provided important insights into its interpretation of the preemption provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) and the related changes the OCC plans to propose to its preemption regulations. The letter provides important details for what a national bank can expect from the OCC upon the effective date (July 21, 2011) of the Dodd-Frank Act, including:
- The OCC considers precedents that are consistent with the conflict preemption principles set forth in Barnett Bank of Marion County, N.A. v. Nelson, Florida Insurance Commissioner, et al., 517 U.S. 25 (1996) to be preserved under the Dodd-Frank Act. These include judicial decisions, interpretations, and the OCC’s rules, where preemption was premised on Barnett-based principles of conflict preemption. In its letter, the OCC specifically lists its preemption regulations on deposit-taking, lending and real estate lending (12 C.F.R. §§ 7.4007, 7.4008, 34.4) as OCC rules which were premised on Barnett-based principles and, therefore, will continue under the Dodd-Frank Act.
- Interpretation of the new Dodd-Frank Act provision regarding preemption of state consumer financial laws includes an analysis beyond the “prevent or significantly interfere” conflict preemption formulation. This is only the starting point, and to be complete, the analysis must consider all of the conflict preemption principles in the Barnett decision. A decision by the 11th Circuit in early May supports the OCC’s understanding, as the court cited other formulations of conflict preemption used in the Barnett decision for the conclusion that under the Dodd-Frank Act, the proper preemption test is conflict preemption (See Baptista v. JPMorgan Chase, N.A., No. 10-13105 (11th Cir. May 11, 2011)).
- Preemption of state law for national bank subsidiaries, agents and affiliates is eliminated under the Dodd-Frank Act and therefore, the OCC plans to rescind 12 C.F.R. § 7.4006, the OCC’s regulation regarding such preemption.
- The OCC will clarify that its regulations follow the conflict preemption principles of the Barnett decision by removing the “obstruct, impair or condition” formulation from its rules.
- The Dodd-Frank Act codified the Supreme Court’s decision regarding visitorial powers in Cuomo v. Clearing House Association, L.L.C., 129 S. Ct. 2710 (2009). Under the Dodd-Frank Act no limitation on visitiorial powers to which a national bank is subject may be construed to limit or restrict the authority of any state attorney general to bring an action against a national bank in a court of appropriate jurisdiction to enforce an applicable law and to seek relief as authorized by such law. Accordingly, the OCC plans to revise 12 C.F.R. § 7.4000 to provide that such an action by a state attorney general (or other chief law enforcement officer) is not an exercise of visitorial powers under 12 U.S.C. § 484.
A complete copy of the OCC letter is available here.
Supreme Court Provides a Victory for Arbitration Clauses—At Least For Now
In a victory for arbitration clauses, the U.S. Supreme Court has decided that the Federal Arbitration Act preempts a rule applied by California courts which frequently found arbitration agreements unconscionable. However, this victory may be short lived for financial institutions that will be subject to the new Consumer Financial Protection Bureau (“CFPB”). Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the CFPB is required to study arbitration clauses and has been authorized to impose conditions or limitations by regulation on the use of arbitration clauses with consumers. In addition, the Dodd-Frank Act has added additional arbitration limitations in certain instances.
Summary of Supreme Court Case:
Building on last year’s decision in Stolt-Nielsen S.A. v. AnimalFeeds International Corp. rejecting class arbitration when the arbitration agreement is silent on the issue, the United States Supreme Court now has upheld the enforceability of class action waivers in arbitration agreements. See AT&T Mobility LLC v. Concepcion.
The court struck down California’s so called Discover Bank rule forbidding class action waivers in contracts providing for arbitration. The 5-4 majority held that the Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq., preempts state law that has a disproportionate impact on arbitration agreements, even if the state law applies generally to all contracts.
Writing for the majority, Justice Scalia opined that the overarching purpose of the FAA is to ensure enforcement of arbitration agreements according to their terms so as to facilitate streamlined proceedings. The California rule could not stand, he explained, because mandatory class-wide arbitration interferes with the fundamental attributes of arbitration and creates a scheme inconsistent with the FAA.
Emphasizing the contractual nature of arbitration, the majority held that application of class procedures in arbitration must be based on the parties’ consent. It referenced three main reasons for this decision.
First, it explained, the switch from bilateral to class arbitration sacrifices the principal advantages of arbitration–informality and speed–and makes arbitration slower, more costly and more likely to produce a procedural mess than a final judgment. The majority cited a report by the American Arbitration Association, which found that it took 6 months for the average bilateral consumer arbitration to reach a disposition on the merits while it took more than 18 months for class arbitrations merely to be settled, withdrawn or dismissed without reaching adjudication on the merits.
Second, class arbitration requires procedural formality to protect absent class members. The majority considered it unlikely that Congress meant to leave these important procedural requirements to an arbitrator.
Third, the majority observed that class arbitration greatly increases risks to the defendant because the absence of multilayered review makes it more likely that errors will go uncorrected. Defendants may be willing to accept the costs of those errors in bilateral arbitration since their impact is limited to the size of individual disputes. But when damages allegedly owed to tens of thousands of potential claims are aggregated and decided at once, the risk of error becomes unacceptable.
Writing for the minority, Justice Breyer took issue with each of the majority’s points, arguing that there is no basis for the notion that individual, rather than class, arbitration is a fundamental attribute of arbitration and that the AAA has found class arbitration not only to be fair, balanced and efficient but also faster than the average class action in court.
Implying hypocrisy among the majority, Justice Breyer also contended that federalist principles should lead the court to uphold California’s law rather than strike it down. But the crux of the dissent appears to rest in Justice Breyer’s rhetorical question: “What rational lawyer would have signed on to represent the Concepcions in litigation for the possibility of fees stemming from a $30.22 claim?”
The facts of the case, however, presented little reason for the majority to worry about that question. The terms of the agreement at issue had the following consumer-friendly provisions:
- Customers could initiate a dispute with AT&T by completing a one-page form available on AT&T’s website;
- If AT&T did not resolve the dispute to the customer’s satisfaction within 30 days, the customer could invoke arbitration by filing a Demand for Arbitration (also available on AT&T’s website);
- AT&T agreed to pay all costs for non-frivolous claims;
- The arbitration would take place in the county in which the customer was billed;
- For claims of $10,000 or less, the customer could choose whether the arbitration would proceed in person, by telephone, or based only on submissions;
- Either party could bring a claim in small claims court in lieu of arbitration;
- AT&T could not seek reimbursement of its attorney’s fees; and
- If the customer received an arbitration award greater than AT&T’s last written settlement offer, AT&T would have to pay a $7,500 minimum recovery and twice the amount of the customer’s attorney’s fees.
AT&T obviously wrote these provisions to avoid a finding that the agreement was unconscionable or exculpatory. And it succeeded. As the majority explained, the District Court found not only that these terms provided sufficient incentive for customers to prosecute meritorious claims that were not immediately settled but also that customers were better off under this agreement than they would be as participants in a class action, which would take months or years and might yield only the opportunity to submit a claim for recovery of a small percentage of a few dollars.
Likewise, the majority pointed out that the Ninth Circuit had “admitted” that customers who filed claims were essentially guaranteed under this structure to be made whole. Because the arbitration agreement could not be deemed unconscionable except for California’s rule against class arbitration waivers, the court held the rule preempted as posing an obstacle to the federal policy favoring arbitration.
With this decision, banks can predictably enforce class arbitration waivers in their agreements with their customers and take advantage of the benefits of arbitration. They must take care, however, to fashion those agreements so they are not unconscionable or otherwise violate those “grounds as exist at law or in equity for the revocation of any contract.”
The complete majority and dissenting opinions of the U.S. Supreme Court in the AT&T Mobility LLC v. Concepcion case are available here.
Looming Implications of Dodd-Frank Act:
The application of the Supreme Court’s preemption may be short lived for banks however, as the federal government may ultimately impose limitations on arbitration clauses under the authority provided to the CFPB in the Dodd-Frank Act. The Dodd-Frank Act requires the CFPB to conduct a study of and report to Congress regarding the use of arbitration clauses in connection with the offering or providing of consumer financial products and services. The CFPB, by regulation, may prohibit or impose conditions or limitations on the use of arbitration clauses, if the CFPB finds that such prohibitions and impositions are in the public interest and for the protection of consumers. Any such limitations on agreements entered into with consumers will follow the CFPB’s study, CFPB rule-making and a 180-day waiting period after the effective date of the regulation (such waiting period is set forth in the Dodd-Frank Act).
Of note, the Dodd-Frank Act includes several other arbitration limitations. In particular,
- The Dodd-Frank Act has modified the Truth-in-Lending Act to add a provision that no residential mortgage loan and no extension of credit under an open end consumer credit plan secured by the principal dwelling of a consumer may include terms which require arbitration or any other nonjudicial procedure as the method for resolving any controversy or settling any claims arising out of the transaction.
- The Dodd-Frank Act has added provisions to protect whistleblowers for covered employees (any individual performing tasks related to the offering or provision of a consumer financial product or service) and those subject to the Securities Exchange Act of 1934 and the Commodity Exchange Act. No predispute arbitration agreement is valid or enforceable, if the agreement requires arbitration of a dispute arising under these new provisions.
- The Dodd-Frank Act has provided the SEC the authority under the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940 to prohibit or impose conditions or limitations on the use of, agreements that require customers or clients of any broker, dealer, municipal securities dealer, or investment adviser to arbitrate any future dispute between them arising under the Federal securities laws, the rules and regulations thereunder, or the rules of a self-regulatory organization if it finds that such prohibition, imposition of conditions, or limitations are in the public interest and for the protection of investors.
